The Government of the Republic of India and the Government of the People’s Republic of China have amended the Double Taxation Avoidance Agreement (DTAA) for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income, by signing a Protocol on 26/11/2018.
Purpose of the amendment of DTAA:
- For the avoidance of double taxation.
- For the prevention of fiscal evasion with respect to taxes on income.
- Additional changes by signing the Protocol:
- It updates the existing provisions for exchange of information to the latest international standards.
- It incorporates changes required to implement treaty related minimum standards under the Action reports of Base Erosion & Profit Shifting (BEPS) Project, where India participated on an equal footing.
Under Section 90 of the Income-tax Act, 1961, India can enter into an agreement with a foreign country or specified territory for the avoidance of double taxation of income, for the exchange of information for the prevention of evasion.
Double Taxation Avoidance Agreement (DTAA):
It is referred to as the Tax Treaty, a bilateral economic agreement between two nations that aims to avoid or eliminate double taxation of the same income in two countries.
A DTAA applies in cases where a taxpayer resides in one country and earns income in another.
DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas such as taxing of income from shipping, air transport, inheritance, etc.
India has DTAAs with more than eighty countries.